The pros and cons of buying a home with no down payment

If you're considering buying a home without a down payment the pros are real, but so are the cons. Here are some tips to help you understand if this option could work for you.

Are you tired of paying rent but haven’t saved enough money for a down payment on a house? Maybe you are a young professional who hasn’t been in the workforce long enough to put money away. If you are determined to buy, you do have options: no down-payment option, also known as zero down, gifted down payment mortgages and cash-back mortgages. But what are the pros and cons?

Of course, the great benefit of purchasing without a down payment is that you can stop renting and move into your home with little out of pocket.

• Keep in mind, you will still need to have money available to cover closing costs.
• This option may be right for you if you can show a lender that you can afford mortgage payments along with other costs such as utilities, condo fees, etc.
• Your debt, employment history and credit score will also be taken into consideration.

How long will it take you to get the minimum down payment saved up? If you think you can do it within a year, it might be advisable to wait. But if you are worried about it taking too long and interest rates jumping, it might make sense to act now.

• Remember that the interest rate you get will be higher and, of course, the amount you are borrowing is increased.

It’s true you can get a loan with no or little down payment. However, by doing so, you also have no equity in the home.

• If real estate values plummet, you could very easily find yourself owing more than what the home is worth.
• If you needed to sell in these circumstances, you would not have enough to pay back the lender. (You might want to consider what many people went through recently with the market collapse in the U.S.)

Your options and restrictions will also vary depending on your province.

• If you have already started looking for homes, your real estate agent can likely answer many of your questions regarding no down payment loans.
• It’s also wise to shop around between lenders in order to get the best rate possible.
• Use the resources available to you and weigh your options carefully.

Borrow the down payment from a family member and avoid the higher rates associated with no down payment loans.

• It's a good idea to sign a contract with that family member to avoid any arguments in the future.
• It need not be a formal contract drawn up by a lawyer.
• At the very least, ensure you document the agreement in black and white and have both parties sign it.

Another option is the Home Buyers Plan.

• You can borrow money from your registered retirement savings plan (RRSP). It's suitable for those with very little debt